DEVELOP OR WIND UP?

• Author: LEOW CHYE SIAN
• Published date: 01 December 1992
• Date: 01 December 1992
• Citation: (1992) 4 SAcLJ 154

Re Inter-Builders Development Pte Ltd1

Facts

Inter-Builders Development Pte Ltd (hereinafter referred to as “the Company”) was incorporated to acquire a piece of land at Jalan Dermawan, develop a condominium on it and sell the units in the condominium for profits. The petitioner, Tang, together with his sister and brother, held 40% of the company’s share capital. Another 40% was held by one Tai Choi, his wife and mother-in-law and the balance 20% was held by one Madam Yu.

Tang was the managing director of the Company and as a result of misunderstandings amongst the shareholders, resigned as managing director and commenced the winding up proceedings.

The petition for winding up was based on the grounds that the Company was unable to pay its debts and that it was just and equitable that the Company should be wound up.

Decision

Rajendran J in the High Court of Singapore granted the petition on the following grounds:

1. 1. Section 254 (2a) of the Companies Act2 was applicable. The preliminary issue raised by the Company which opposed the petition was whether an error in the statutory demand (which is required under s. 254 (2a) of the Companies Act) as to the amount owing by the Company would render the statutory demand defective. After considering a number of differing decisions from England, Australia, Malaysia and Singapore, Rajendran J held that s. 254 (2a) of the Companies Act:

   “would operate if the petitioning creditor can establish that a sum exceeding $2000 is due to him from the Company and he has made a demand for a sum in excess of $2000 in the manner provided in s. 254 2(a) (of the Companies Act) which the debtor had neglected to pay;”

2. 2. There were no substantial grounds on which the Company could found a claim against Tang for breach of his duties as a director;

1. 3. There were no substantial grounds that there was an agreement between the shareholders that their loans to the Company would not be repaid until after the project accounts had been released;

2. 4. There was no evidence that there was an agreement to defer payments of outstanding salary bonus and directors’ fees.

3. 5. It was just and equitable to wind up the Company as the Company was in substance a partnership.

Comments

The above case is interesting as the court dealt with many issues that usually arise when a company is not doing well.

I. Unable to pay — s. 254 (2a) of the Companies Act

The preliminary issue that the Court had to decide was whether the Company could be deemed to be unable to pay its debts under s. 254 (2a) of the Companies Act when the total sum stated in the statutory demand given by Tang was erroneously stated to be $168590 instead of $167990. To put it simply, the issue was whether the error rendered the statutory demand defective. Rajendran J went through various decisions dealing with similar provisions in the United Kingdom, Australia, Malaysia and Singapore.

Rajendran J cited Cardiff Preserved Coal and Coke Co v Norton3 to represent the United Kingdom position that so long as the amount claimed is above that stated in the provision, a demand has been served at the registered office of the company requiring the company to pay the sum so due and the company for a certain time neglected to pay such sum, the company can be deemed to be unable to pay its debts. Rajendran J quoted Lord Chelmsford L C in CardiffCase4 that:

“the construction contended for (by the defendant) would make every winding-up order bad where the creditor had demanded the smallest sum above what was actually due to him.”

In dealing with the authorities in Australia, Rajendran J noted that Cosgrave J in Re Pardoo Nominees Pte Ltd5 held that the word “deemed”

in the equivalent of our s. 254 (2a) of the Companies Act was used not to create a statutory fiction but:

“to indicate that the draftsman has listed the available avenues whereby the requisite conclusion may be reached.”

Processed Sand Pty Ltd v Thiess Contractors Pty Ltd 6 was cited to hold a contrary view and Re Fabo Pty Ltd7 was cited to have considered the conflicting authorities in Australia and to have held that the word “deemed” did not create a statutory fiction of insolvency.

Rajendran J cited the Malaysian case of Re Perusahaan Jenwatt Sdn Bhd8 to have refused to follow the decision in Re Fabo9 and instead followed Processed Sand10 in interpreting the similar provisions in s. 218(2a) of the Malaysian Companies Act, 196511.

As for the local scene, Rajendran J cited Re Sanpete Builders (S) Pte Ltd12 where Chao Hick Tin JC (as he then was) stated obiter, that CardiffCase13 is the correct interpretation. Rajendran J concluded that CardiffCase14 is correct and quoted Lord Chelmsford L.C.

In CardiffCase15, under similar provisions in the United Kingdom, a demand had been made by the creditor for £628 but the actual debt was only £411. Lord Chelmsford L.C. rejected the company’s argument that the notice had failed to specify “the sum so due.” Lord Chelmsford L.C. concluded that:

“… the liability of a company to be wound up … arises when a creditor, to whom the company is indebted above £50, serves a demand requiring the company to pay the sum so due, and the...